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February 3, 2012

The sky is the limit – retailing and the future of ancillaries

“On ancillaries, the sky really is the limit”. This was the opening salvo of the New Airline Commercial Models, Retailing and Merchandising 2012 conference, which gathered industry experts in London last week to explore new ways of distributing airfares and inventory. As we heard at the conference, there are over 50 different types of ancillary services being offered by airlines today worldwide, from extra-leg room and empty seat options, to extra products and services that can be bought on-board, including branded shoes and even roses.

The ultimate ancillary service from Air Baltic: selling romantic red roses on board.#airlinebusinessncm

The key, most panellists seemed to agree, is to customise, to understand how travellers make decisions and how they want to shop. Retailing is paramount. As David Doctor, Director Distribution Marketing Amadeus, suggested in his previous blog: “we are moving from Global Distribution Systems to Global Retailing Systems (GRS)”, which add more interactive control over the airline product, and how that is sold.

At the event, David encouraged consideration of the entire journey experience (moving away from origin-destination-based search and fare-based comparison) and how to best use the ‘context’ airlines hold about their customers to deliver tailored offers that boost upsell and merchandising opportunities. Without merchandising approaches, airlines would only be selling based on price and availability, which isn’t compelling enough.

By taking an open and transparent approach to deploying ancillary services both airlines and travellers benefit. Delivering a well-executed and thought through ancillary service strategy provides the traveller with greater choice, control and flexibility. It allows them to more effectively tailor the trip to their individual needs, more so than is possible in a fully bundled ticket.

At Amadeus, David explained, we are considering how to incorporate traveller information into the sales process more fully, especially in the travel agency channel.

Sebastien Touraine from IATA’s StB (Simplify the Business) team pointed out that 50% of airline sales are generated by travel agencies, so equipping this channel to sell ancillary services offers the industry a vast untapped opportunity.

Ancillary services innovation was prominently illustrated by Patrick Edmond, managing director of e2consult, who explained how an airline and an airport can team up to deliver a “virtual trolley”. The airline opens up its on-board market in order to sell a catalogue of ancillary services – focusing on items that are unsuitable to store on board, e.g. large bottles of alcohol. The customer then collects these items at the arrival airport duty free shop or they are shipped to customers’ homes.

Janis Vanagas at AirBaltic outlined his airline’s range of creative ancillaries that comprised his ‘megastore’ concept. Optional products and services include rental bikes in Riga, right the way through iPad rental on flight and Mini Cooper cars! According to Janis, Air Baltic’s sales represent 7% of Latvia’s total exports and based on this logic and his quick calculations, AirBaltic ancillaries could be actually worth 1% of Latvia’s total exports.

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